About Me. Background of you. Let s Get Started. Chapter Quotation. Chapter 1 Accounting Information Systems and the Accountant

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1 Core Concepts of ACCOUNTING INFORMATION SYSTEMS Moscove, Simkin & Bagranoff 1 About Me 2 Developed by: S. Bhattacharya, Ph.D. Florida Atlantic University John Wiley & Sons, Inc. Philip Laube CPA, Controller & Senior Finance Mgr plaube@muskingum.edu x8101 or x8111 (Lisa) OFFICE HOURS: 7:30 8:00 or 5:00 5:30 BUT or call for appointment Chat time? Let s Get Started 3 Background of you 4 Syllabus Book Practice Set Turn in printouts and questions from instruction book Work due when we get to section of text book OK to work ahead Outline of course No set dates Course may adjust based on time available Exams content and timing may change So it s important to be in class! Each person Name Prior Accounting School/Classes Job Prior IT experience School Job Fun (it s ok to be a geek) Chapter 1 Accounting Information Systems and the Accountant 5 Chapter Quotation 6 Introduction What are Accounting Information Systems? Accounting in the Information Age Careers in Accounting Information Systems The accounting industry has always been paperdriven. Now it is becoming technology driven. Maureen Link, 3G Technology Will Change the Way You Work, Pennsylvania CPA Journal (Spring 2003), p. 19. The American Institute of Certified Public Accountants (AICPA) has projected that two of the top technology issues facing the accounting profession during the first several years of the 21st century are: Information security and controls within information systems, and Electronic commerce

2 The Information Age 7 An Information System 8 In the information age, fewer workers are making products, and a large segment of the employee population is involved in producing, analyzing, and distributing information. Knowledge workers comprise much of the labor force. A major contributor to the information age is the Internet. A System is an entity consisting of interacting parts or components that are attempt to achieve one or more goals. An Information system is a set of interrelated subsystems that work together to collect, process, store, transform, and distribute information for planning, decision making, and control. Firms depend on information systems in order to stay competitive. AIS: At the Intersection of Accounting and IS 9 An Accounting Information System 10 Inputs: Data/Information from Internal/External sources Accounting Accounting Information Systems Information Systems Data Repository/ Files, Databases, Etc. Processes: Sort, Organize, Calculate Outputs: Information for Internal/ External Decision Makers Data versus Information 11 MIS versus AIS 12 Data are raw facts about events that have no organization or meaning. Information is data that have been processed and is meaningful and useful to users. Historically, a Management Information System Provided financial and nonfinancial information to internal users (management). The Accounting Information System provided financial information to both external and internal users. Now, the two systems overlap same information focusing on business processes.

3 Accounting in the Information Age 13 Why Do Accounting Information Systems Fail? 14 Financial Accounting Managerial Accounting Auditing Taxation Hardware problems Software problems People problems Data problems Processing procedures What s New in AIS? 15 Examples of Recent Accounting Scandals 16 Countering terrorism New accounting scandals The Sarbanes-Oxley Act of 2002 The Jobs & Growth Tax Relief Reconciliation Act of 2003 WI-FI Technology Enron 2001 Imclone2001 Arthur Andersen 2001 Merrill Lynch 2002 Tyco 2002 Adelphia2002 Global Crossing 2002 Parmalat 2003 NYSE 2003 WorldCom 2003 HealthSouth2003 Taxonomy of Accounting Information Systems 17 Financial Accounting 18 An Accounting Information System Financial Accounting Cost Accounting Managerial Accounting Budgeting Systems Study The objective of financial accounting provide relevant information to individuals and groups outside an organization s boundaries. Users include investors, tax agencies, and creditors. Objectives achieved through preparation of financial statements.

4 The Financial Accounting Information System 19 A Financial Accounting Audit Trail 20 Inputs transactions measured in monetary units. Audit trail enables information users to follow the flow of data through the system. Parallels the accounting cycle, which begins with a transaction ends with producing financial statements (and closing temporary accounts) A good audit trail permits managers to follow source document data from input through processing to the output report (and vice versa) Input Source Documents Journals Transaction Ledgers Processing Trial Balance Financial Starements Output and other external reports Files of Source Documents 21 Criticisms of the Financial Accounting Information System Managerial Accounting 22 Lack of timeliness and usefulness Too much aggregation of information Segment reporting concerns reporting of disaggregated information. Information overload Objective of Managerial Accounting provide relevant information to a company s managers, who are internal users Three components of managerial accounting are: Cost Accounting Budgeting Systems study Features of Managerial Accounting 23 Cost Accounting 24 Information for internal parties, rather than external Mostly forward-looking Not regulated by GAAP Not mandatory to prepare Reports include non-monetary and financial data Information is flexible. Frequently involves non-routine reporting. Influenced by many business and non-business disciplines Cost accounting assists managers in functions related to an organization s acquisition, processing, distribution and selling activities. Activity-based costing systems assign overhead to products based on cost drivers. Responsibility accounting systems help managers trace unfavorable performance to the department or individual that caused the inefficiencies.

5 25 26 Budgeting Systems Study A budget is a financial projection for the future and thus is a valuable managerial planning aid. Budgets are used for managerial control. Actual results are compared to budgeted results. The budgetary function in the AIS affects all the subsystems within an organization. Because of managerial accountants ability to understand internal financial systems, organizations may hire them to perform system studies. Many systems studies use the team approach. The team may include marketing specialists, computer experts, production managers, engineers and industrial psychologists Steps in Systems Study Auditing Planning Develop strategic plans Analysis Review current system Design Design new system Implementation and Follow-up Put the new system in place and continue to monitor it Auditing has become a mature industry? Accountants are focusing on additional assurance services in arenas other than financial reporting. CPA WebTrust is a service that provides assurance that a company engaged in electronic commerce can provide the goods and services purchased as promised. Assurance Services identified by the AICPA Special Committee 29 Taxation 30 Risk Assessment Business Performance Measurement Information Systems Reliability Electronic Commerce Health Care Performance Measurement Eldercare Plus Information technology enables the automation of income tax returns. Electronic tax libraries and on-line tax services make it easier for accountants to perform tax research.

6 Careers in Accounting Information Systems 31 Careers in Accounting Information Systems 32 Systems consultants Designing information systems, selecting hardware and software, or reengineering business processes. Value-added resellers (VARs) sell a certain software program and provide consulting services to companies. Information systems auditors concern themselves with analyzing risks associated with computerized information systems. Professional hackers can show organizations ways that their computer system could be penetrated. Information systems auditors can be licensed as Certified Information Systems Auditors (CISA). Information Systems Audit and Control Association (ISACA) certifies a CISA. Copyright 33 Chapter 1 34 Copyright 2005 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make backup copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.